European FX Outlook: Deceleration in the UK inflation is seen boosting Sterling

What you need to know before markets open:

• The US fiscal stance under President Donald Trump is clearly in favor of the US military financing and financing of the Wall.
• The UK inflation figures including retail price inflation, producer price inflation, and most importantly consumer price inflation are due on Tuesday.  
• The Bank of Japan Governor Kuroda reiterated the need for powerful monetary easing to achieve 2% inflation target in Japan. 

Tuesday’s market moving events

• French non-farm payroll is expected to rise 0.2% Q/Q in the final quarter of 2017.
• The UK CPI is set to decelerate to 2.9% in January, down from 3.0% in December. For details read my Preview here.
• The UK retail price index is set to rise 4.1% in January.
• The US small business optimism is expected to 106.2 in January from 104.9 in December.
• Cleveland Federal Reserve President Loretta Mester is set to speak at the Dayton Area Chamber of Commerce Government Affairs Breakfast Series in Dayton, Ohio at 13:00 GMT.
• The New Zealand food price index is set to increase by 0.2% m/m in January after falling -0.8% m/m in December.
• Japan’s GDP is expected to rise 0.2% Q/Q while rising 0.9% over the year on an annualized basis.

Major forex market movers

• The US Dollar was little changed on the downside during the data weak Monday but retreated somewhat against the European major including EUR and GBP.
• Watch GBP factoring in the UK inflation figures. 

Monday’s macro summary

• Swiss CPI fell -0,1% while decelerated to 0,7% y/y in January.
• The US January Federal Budget reached a surplus of $, 49.0 billion, missing the expectations of $51.0 billion.
• The Bank of England Monetary Policy Committee member Dr. Gertjan Vlieghe said that further rate rise is likely.
• Reserve bank of Australia assistant Governor Lucy Ellis sounded a bit more confident about pick up in Australian wages and inflation.
• Japan Prime Minister Shinzo Abe did not yet decide on next Bank of Japan Governor but expects BoJ to maintain current easing course.
• Bank of Japan governor Kuroda: economic fundamentals, corporate profits that serve as the basis for stock moves are solid and we will continue to closely monitor domestic and overseas stock moves as they could affect Japan's economy and markets. BOJ must maintain powerful monetary easing for the economy, including the current pace of ETF buying as it is necessary step to achieve price target.
• Bank of Japan governor Kuroda: cryptocurrencies are unlikely to threaten sovereign currencies as means for settlement.